Business Law: Employee Benefits

Business lawyers specializing in employee benefits and compensation issues are often called “benefits lawyers.” Their practice focuses on federal and related state regulation of workplace benefits, such as stock options, family and medical leave, severance pay, and retirement, health and disability benefits. These lawyers are sometimes referred to as ERISA attorneys, but handling Employee Retirement Income Security Act cases is typically just a subset of the work they do concerning benefit plans.

Generally, benefits attorneys advise companies with respect to the design, implementation and operation of their employee benefit plans. They may design and draft ERISA-qualified plans, non-qualified plans, health and welfare plans, equity compensation plans, and executive and deferred compensation plans. They are often consulted upon a corporate merger or acquisition, because these corporate changes typically affect the benefit plans of the entities involved in the transaction, particularly [...]

Business lawyers specializing in employee benefits and compensation issues are often called “benefits lawyers.” Their practice focuses on federal and related state regulation of workplace benefits, such as stock options, family and medical leave, severance pay, and retirement, health and disability benefits. These lawyers are sometimes referred to as ERISA attorneys, but handling Employee Retirement Income Security Act cases is typically just a subset of the work they do concerning benefit plans.

Generally, benefits attorneys advise companies with respect to the design, implementation and operation of their employee benefit plans. They may design and draft ERISA-qualified plans, non-qualified plans, health and welfare plans, equity compensation plans, and executive and deferred compensation plans. They are often consulted upon a corporate merger or acquisition, because these corporate changes typically affect the benefit plans of the entities involved in the transaction, particularly the target company. Many benefits attorneys also represent clients before the IRS and the Department of Labor in audits or other matters that may result in changes to a client’s benefit plans.

With the increasing focus of legislation and regulation on executive compensation, benefits lawyers need even broader expertise than in prior years. ERISA is still the primary statutory framework governing the area, but changes in the Internal Revenue Code are also of critical importance. The new health care legislation also expands the area of focus for employee benefit attorneys. Compliance with the health care law is likely to become a significant component in the operation of the company’s welfare benefit plans.Unlike other traditional employment law practices, employee benefits have a significant transactional component. Employee benefits lawyers work with a variety of companies from start-ups to mature public companies. They are involved from the beginning of a client relationship when founders are contributing assets to the venture so that it is advantageous from a tax benefit to both the founder and the company. They advise on and draft stock option and various other benefits plans. They are also routinely called on to advise, negotiate and draft high-level employment and severance agreements.

Employee benefit lawyers frequently advise their colleagues on public and private financings and other “deals.” For example, diligence for an M&A transaction typically requires a careful review of the target company’s benefit programs and advice concerning post-closing benefit issues such as “golden parachute" severance payments, plan mergers or plan asset and liability transfers. Benefits lawyers are called upon to assess the cost of liabilities to the buyer and, if necessary, to advise on and negotiate any employment agreements or related contracts with the executives who may be continuing after the transaction. Diligence may also require a review of employment agreements, incentive plans, change in control plans and other plans or agreements of the executive officers and top employees. This practice area is growing, especially since recent legislation has required increased transparency of the compensation regimes for executives and directors.

Employee benefits lawyers are always an important part of any public company client team to assist with the ongoing disclosure issues that arise with executive compensation issues, as executive compensation has been a “hot button” issue for both the SEC and the public for some time now. The practice of executive compensation and benefits varies from firm to firm but, generally, lawyers who practice executive compensation either serve client companies in negotiating employment contracts with individuals or serve the individual employees, usually an executive officer or director, who is negotiating a contract with a current or prospective employer.

Benefits lawyers may also specialize in litigating employment benefits cases. Or they may be asked to assess a company’s obligations regarding employee stock options in a shareholder suit. It’s one area of law where an attorney can have a real mix of transactions, litigation and counseling. Regardless of the mix, every benefits lawyer needs to have a solid grounding in corporate finance to understand how benefits factor into a corporation’s bottom line and an expertise in tax law to fully understand the tax ramifications of benefit decisions on both the company and its employees.

It is important for benefits attorneys to have to have a lifelong learning attitude. Much of employee benefits law is driven by provisions of the Internal Revenue Code and other areas of the law which change often, so flexibility and a willingness to learn and to keep current are important traits for a successful benefits attorney. One of the benefits of this feature of the practice is that well-trained compensation and benefits attorneys are always in demand, regardless of economic cycles.

As is true for any “specialist” area of corporate law, someone looking to do executive compensation should be able to balance a lot of tasks at once and have good time management skills. While a securities or M&A associate, for instance, will be staffed on one or two deals at a time, an executive compensation associate can be staffed on as many ten or so deals or assignments at a time. This requires strong organizational skills and an ability to work efficiently. Interpersonal skills are also very important as executive compensation lawyers serve and interact with individuals as interested parties more often than in many other areas of corporate law.

In many law firms, an employee benefits practice will fall into the “business” side of the firm and sometimes it is part of a firm’s employment law department. While most employee benefits attorneys are in private practice, a benefits attorney may sometimes move in-house to a large company to do ERISA or other benefits work -- or perhaps to work in the human resources department. Consulting firms that do compensation planning may hire benefits attorneys once they have a few years of law firm experience. There are also some opportunities to work for the Department of Labor (DOL) or the IRS. Attorneys who go in-house or to the IRS/DOL often return to a firm and vice versa.

A great deal of benefits work is based on the federal law of ERISA so benefits attorneys practice throughout the United States. However, the most sophisticated practice groups in the compensation and benefits area tend to be located in large firms in New York, San Francisco, Chicago, Los Angeles, and other major US cities.